Yves here. Even though predatory capitalism has some local variations, many of the basic elements of the Down Under version will look very familiar to Americans. Cameron Murray’s and Paul Frijters’ new book Game of Mates examines how the impulse to cooperate leads to the formation of networks among the elites. This is similar to the thesis of Janine Wedel in her book The Shadow Elites, but takes a hard look at how these networks engage in rent extraction. Game of Mates describes how these mechanisms work, how much it costs, and what citizens can do about it.

This is LF Economics’ first review of a book, entitled Game of Mates: How Favours Bleed the Nation by economists Cameron K. Murray and Paul Frijters. The name is a play upon the wonderful TV series Game of Thrones and rightfully so, given both are about how a small number of wealthy and highly-connected individuals, often operating within a cluster of powerful networks, rig rules, policy, laws and ideology for their personal and class benefit.

Game of Mates is a gold mine of information on the racket of rent extraction for a number of reasons. First, it provides background on how the game slowly evolves (Chapter 1) by contrasting the hard-working Aussie Bruce with the connected insider and rent extractor known as James. By using the power of networking and soft corruption, the wealthy James (the 1%) is able to rip-off Bruce (the public) legally without violating the rule of law.

Second, the book goes on to detail the largest state-backed legal thefts carried out by the corporate sector for the benefit of rentiers. This term means those who obtain rents (unearned wealth and income over and above what is justified by perfectly-competitive markets). Unfortunately, Australia is a haven for robber barons, siphoning massive and illegitimate mountains of rents from the property market (Chapter 2), transportation (Chapter 3), superannuation (Chapter 5), mining (Chapter 7) and banking (Chapter 9) for the benefit of owners and managers.

The gargantuan level of graft which is currently taking place in our economy is not to be underestimated. Australia has the world’s largest tax expenditures to GDP ratio, feeding the property and superannuation industries. Our household debt to GDP ratio is the second-highest, explaining the sky-high land prices and super-profits our state-protected oligopolistic banking industry siphon annually. While there has been much commentary around the banks’ profiteering, it pales into comparison with those generated by the heavily-subsidised, rent-extracting mining industry over the last decade.

Transportation is heavily interconnected with the property market, and has devolved into private monopolistic tax farms, delivering substandard services while charging usurious fees. Private bankers can charge double the interest rates and fees relative to direct public funding (which would actually require no interest costs at all). An additional consequence are the gifts given to property developers and speculators via the uplift of land values around new development sites. The economist Michael Hudson has covered this issue extensively.

Superannuation is a leviathan, taking 9.5% of workers’ pay on the pretext of reducing the burden on the age pension in retirement. Whatever the intentions of the Hawke-Keating government by enacting this scheme, it now exists for two reasons: the system allows the parasites in the financial sector to cream off around $25 billion annual in fees and provides a funnel for high-income earners to reduce their taxes (hence the hefty super tax expenditures). Only minor reforms have been enacted to stem the generosity of superannuation.

The perverse polices which promote the upwards redistribution of wealth are achieved legally by exploiting grey areas within politics, law and regulation (Chapters 4 and 8). Soft corruption is quite distinct to the issue that we focus on, namely control fraud. This is the outright and illegitimate breaking of the law where controllers of the firm use the institutions they manage as a weapon and shield to engage in widespread looting. The Australian banking and financial system is an obvious example.

Game of Mates helps to reveal the absurdity of what is falsely called free-market capitalism, as it is thoroughly infected by rent extractors. Recent research has demonstrated that Australia’s private sector is dominated by cartels of monopolists, duopolists and oligopolists to an even greater extent than the US, the latter of which is often considered the home of crony capitalism. This is no mean feat.

Whoever said there is no such thing as a free lunch (perhaps it was Milton Friedman or someone he quoted) is speaking an utter absurdity. The term ‘free lunch’ doesn’t do justice in describing the epic levels of legal grift in our economy. Indeed, it should be termed ‘free banquets’ as we argued in our article Australia’s Real Lifters and Leaners.

The process of extracting free banquets has gained pace since the neo-liberal reformation of the economy by the Hawke-Keating government, lurching from the centre-left to the centre-right on economy policy during the 1980s. The Howard government continued and magnified these rackets when in power between 1996 and 2007. It should be important to note that these policies can hardly be termed ‘neo-liberal’ when they are not new and often have little to do with economic liberalisation. Perhaps neo-feudal capitalism is a better term.

Unfortunately, the Rudd and Gillard governments did little to reverse this deleterious state of affairs. The current batch of statist reactionaries in power have every interest in continuing the game, while attempting to attack marginalised and disadvantaged groups at every turn, though the leadership is floundering. Abbott (King Joffrey) is gone, Turnbull is in the process of committing suicide (King Tommen), so who will rise up and take power like Queen Cersei?

The reactionary narrative is necessary to divert attention away from those who benefit from Australia’s far larger welfare system as the government runs two welfare systems. The first and much smaller one is the social welfare system that assists those who are in need. In contrast, the far larger welfare system provides assistance to the wealthy, based on inverted principles: those who need assistance the least get the most.

This capitalist welfare system is composed of unearned wealth and income, extracted from the public and passed down tax-free to the next generation of the 1% who continue the game of neo-feudalism. For these vested interests, the game consists of a virtuous positive feedback loop between wealth and rent-seeking.

The Game of Mates is about detailing the methods of redistribution from the poor, labour, productive competitive business and the environment into the pockets of those who benefit the most from non-work. There are some data on how much the wealthy steal from everyone else (Chapter 13). Hint: the redistributions are massive in scale and yet do not quantify the full extent of the rent extraction taking place.

In addition, apart from criticising the upwards redistribution of wealth, they advocate solutions to rectifying these problems (Chapter 14). This can be done by reclaiming the value of the free banquets for the public, disrupting the coordination and networks used by rentiers, and shattering the myths peddled to justify their wholesale theft.

This book is a very timely addition to the emerging research in Australia and elsewhere which explains the processes and estimates the amount of wealth and income siphoned off by these schemes of legal theft. At 204 pages, it is not overly long and is makes for an easy read. Fortunately, the authors avoid the often opaque writing style and jargon often found in the economics and financial academic literature.

If one wants to understand how the country is being looted by the minority of the opulent for their own benefit, look no further.

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24 comments

I dispatched this long ago on this bolg Yves, there was never anything unfortunate about it, her legal career speaks for itself. Rudd on the other hand was anti MPS, but was labeled an totalitarian because he did not placate the neoliberal right wing of the labour party.

disheveled… yet our lot has more to do with capital flows and being a place that as not been ravaged of yet and a store of some paradise…. getting more like Texas everyday….

Great tip – I will search it out. I have no doubt it will describe Britain too. It’s incredible how there is not wider awareness and debate of how we can get done over by this basic list of economic sectors.

And nice to see Brizzy in the (former) land of the fair go looking good on the video!

Los Angeles recently acknowledged the 25th anniversary of the Rodney King riots. The LA press seems to admit that not much has changed for the better in the worst-suffering neighborhoods. If you have an opportunity to find any footage of rioter or looter behavior from that era, it would seem to be a cautionary tale for other cities around the world on what to expect elsewhere when common decency and civilizing elements are ignored or flouted.

When I saw the word “Fairfax”, I started free associating, and I wondered whether the American Fairfax family of the 18th century was related to the Australian Fairfaxes. It would appear that they are not, if these web sites are correct:

Have the demographic traits and linkages been exposed to the wider Australian population, say, outside the Murdoch or Fairfax press? How much of the pirate class went to which Uni, belongs to which clubs, etc. There are bound to be many under-reported elements that would cry out for some disinfecting sunshine.

Very true. See “Nepotism is the new normal in America” (by Edward Luce), according to which 25% of Ivy League students are legacy students. No source given. Assuming he is right: Add to that the number of admissions of students who have bought their admission straight on. Ignore CalTech and MIT. And you might estimate the real number of 1%-kids at Harvard, Yale, Princeton & Co.

It’s our job to prevent the existence of trillionaires. Before that becomes a remote possibility, let’s prevent the existence of hecto-billionaires, although there is already at least one family with more than $100 billion, the Waltons, and the Kochs are getting close. If any person in the U.S. ever gets more than $100 billion in assets, we will have failed as citizens. Let’s not fail as citizens.

1. He’s the head of a government, which makes him a special case.
2. The trillion probably belongs to his extended family. He’s the chairman of the board, so to speak, but I question whether he can claim all of those assets for himself.

Anyhow, I guess this is yet another reason to reduce one’s use of petroleum based products. The Saud and Koch families benefit whenever someone buys gasoline, diesel, heating oil, kerosene, or plastic, and those families are renowned for being not very nice.

You might also mention that he is also an absolute monarch, which means he personally owns everything in his kingdom, he merely lets others use his things (buildings, roads, businesses, oil) in return for a cut

The interesting thing about exploiting personal connections to extract rents, build cartels, capture regulators, gain legal protections, or generally restrict competition is that all these activities are essentially risk free. Gaining a rent or legal protection from a friend or colleague has zero risk, and guarantees higher profits. This is in contrast to innovation or product improvement which requires high risk, time, effort, capital, and expertise, but can return much higher profits. When opportunities for rent collection become systemic, I think economic rents can crowd out risky innovation because returns for economic rents are guaranteed. In this case the probabilities for (short-term) economic success are higher with economic rents, and as the saying goes ‘firms act to maximize profitability’. That is a bad outcome for all of society.

In 2014 62 individuals owned one half of the world’s wealth, now that’s down to just 8 people (how they sleep at night is utterly beyond me). When it’s down to one guy we can strangle him in the bathtub and redistribute, and usher in a new Golden Age of prosperity and peace.

It should be important to note that these policies can hardly be termed ‘neo-liberal’ when they are not new and often have little to do with economic liberalisation. Perhaps neo-feudal capitalism is a better term.

It is high time to use primarily the terms “neo-feudal capitalism” or “neo-feudalism”. They capture the essence of the system under observation, are much better known and do not allow grave misinterpretations. The reasons against using “neo-liberalism” are mentioned in the quote above.